New policy on currency

Press, 22 June 1979, Page 1

New policy on currency

By

ADRIAN BROKKING,

commercial editor

The unexpected devaluation of the New Zealand dollar announced by the Prime Minister and Minister of Finance (Mr Muldoon) last evening acknowledges that our currency was overvalued.

The adjustment of 5 per cent is smaller than many commentators had called for. but this is offset by the introduction of a system of frequent but gradual changes. New Zealand will change to a system of regular but small adjustments in the exchange rate if and when they are needed, rather than the bigger and periodic movements which tend to be much more disruptive. From today, the exchange rate of the New Zealand dollar will be determined not only in terms of a trade-weighted basket of the rates of our significant trading partners, but also relative to the rate of inflation. This will make it easier to maintain the competitiveness of our exports.

After the devaluation, New Zealand exports will be cheaper on world markets, or in the case where we are price-takers we wih receive more for our exports. Obviously this will benefit exporters, and farr-ers once the higher receipts find their way info the economy. Imports, of course, will be more expensive, and to that extent may be discouraged. These effects are beneficial to the New Zealand economy, and will help its restructuring.

Exports are also encouraged by the three export incentive schemes introduced by the Budget.

These schemes are designed to reward export while preventing abuse, and are a definite improvement on the present system of export incentives. The first scheme will give a virtual cash refund to approved exports, including tourism, but only to the extent of New Zealand value added. This means that imports cannot be re-exported, just to receive a tax rebate.

A new export market development taxation in-

centive is also run by way of tax rebate or cash refund instead of the old deduction-based scheme. Only expenditure directly connected with the promotion abroad of New Zealand goods and services, including tourism, will qualify. The third scheme — the exports programme grants scheme — will take care of market development research. Again tourism is included, the total assist-

ance level being 80 per cent. Each of the three new schemes will provide assistance tailored to the reeds of a particular type of export activity, and should do much to encourage New Zealand’s export performance. Together with the devaluation and the package of measures for farmers, they .are desirable moves to nudge the New Zealand economy in the right direction.